Holiday cruise control initiated, here is Wednesday NASDAQ trading plan

NASDAQ futures are coming into Wednesday with a slight gap up after an overnight session featuring elevated range and volume. Price was balanced overnight, doing a little down rotation until about 8pm New York then doing an up rotation to negate it. At 8:30am durable goods orders and jobless claims data came out better than expected. As we approach cash open, price is hovering in the upper quadrant of Tuesday’s range.

Also on the economic calendar today we have new home sales and consumer sentiment at 10am and crude oil inventories at 10:30am.

Yesterday we printed a normal variation down. The day began with a gap up just beyond the Tuesday range. The open two-way auction first saw buyers rejecting an attempt back into Monday range. Then a brief push higher before sellers stepped in and worked the overnight gap fill closed. Sellers then spiked a bit lower, probing into the conviction buying seen Monday afternoon. Buyers defended their territory and formed a sharp excess low before reclaiming the midpoint. The rest of the session was spent marking time and we ended the day above the midpoint.

Heading into today my primary expectation is for buyers to gap-and-go higher, poking up beyond Tuesday high 12,754.25 before two way trade ensues.

Hypo 2 sellers work into the overnight inventory and close the gap down to 12,709.75. From here sellers continue lower, taking out overnight low 12,630.25 before two way trade ensues.

Hypo 3 stronger buyers trade up to 12,800 before two way trade ensues.

Levels:

Volume profiles, gaps and measured moves:

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NASDAQ futures are coming into Tuesday with a slight gap up after an overnight session featuring extreme range and volume. Price worked higher overnight, trading up through the Monday high. At 8:30am GDP data came out slightly better than expected. As we approach cash open price is hovering near record highs.

Also on the economic calendar today we have consumer confidence and existing home sales at 10am followed by a 5-year TIPS auction at 1pm.

Yesterday we printed a neutral extreme up. The day began with a gap down below the prior Friday’s range. Sellers stepped in and drove lower after a spike higher at the open. Sellers worked down through overnight low by a few ticks before a strong responsive bid stepped and and drove price back up through the daily midpoint. (Failed auction lower). Then buyers continued higher, eventually pressing into a neutral print and closing along the daily high.

Heading into today my primary expectation is for sellers to work into the overnight inventory and close the gap down to 12,689.25 before two way trade ensues.

Hypo 2 gap-and-go higher, trading up through overnight high 12,760 on the way to tagging 12,800.

Hypo 3 stronger buyers sustain trade above 12,800 early on, setting up a run to 12,900.

Levels:

Volume profiles, gaps and measured moves:

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NASDAQ futures are coming into Christmas week down a quick -140 after an overnight session featuring extreme range and volume. price was balanced overnight until about 4:30am New York. From 4:30am until about 6am price drove lower, rotating unidirectional down to the open gap left behind last Monday afternoon. Since then price has bounced off the lows, and as we approach cash open price is hovering in the lower quadrant of last Wednesday’s range.

On the economic calendar today we have 3 and 6-month T-bill auctions at 11:30am followed by a 20-year note auction at 1pm.

Last week featured a strong rally early Monday that carried price higher throughout the week. Selling Friday gave back some of the Wednesday/Thursday gains before strong ramp into the weekend close reclaimed much of the gains. The last week performance of each major index is shown below:

On Friday the NASDAQ printed a normal variation down. The day began with a gap up and poke higher, making a new all-time high before sellers stepped in and closed the overnight gap then continued their campaign lower, down through the Thursday low. Then we spent New York lunch checking back to the daily midpoint (which sellers defended) setting a second leg lower. This second leg worked price down through the Wednesday VPOC. Then, late in the session, right around the Wednesday midpoint, a strong ramp took hold, ramping price back up above the midpoint and closing the day out in the upper quad of range.

Heading into today my primary expectation is for buyers to work into the overnight inventory and trade up to 12,675.25 before two way trade ensues.

Hypo 2 stronger buyers work a full gap fill up to 12,739. Look for sellers up at 12,747.75 and for two way trade to ensue.

Hypo 3 sellers gap-and-go, trading down through overnight low 12,463.50 on their way to tagging 12,400. Look for buyers down at 12,372.25 and for two way trade to ensue.

Levels:

Volume profiles, gaps and measured moves:

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Totally cliche right? To proclaim Sapiens to be a meaningful book? Kinda sucks but, the book just really makes clear how to invest.

Now I may be just a humble NASDAQ futures trader and prolific but unpopular blogger/fintwitter-er, but several years back I read that pop-culture book and it changed the way I invest. Folks sometimes ask me what book I recommend on investing, and I say Sapiens every time. The writing in that book laid the ground for the investing style I’ve come to call “faith-based investing”.

Drinking the koolaid is what made people into bitcoin millionaires. HODL! The battle cry of seemingly insane investors, right?

The big shot professionals with their serious haircuts can’t help but snicker at the concentrated bet investors who go all in on one or a few ideas. What could go wrong? They sarcastically ask.

They don’t have big enough huevos.

The concentrated long term bet on any financial instrument is a threat to their professional existence. The people of financial services make a living prying into the personal life of others then making really average investments in really average ways that produce really average returns.

Which is fine if you already have money.

Most of us don’t.

If you’re someone who wasn’t born rich and you want any hope of becoming truly wealthy then you have to make concentrated long term bets.

I strongly recommend making your biggest bets on yourself. On places where your efforts have an effect on the outcome. These require less faith in others and more in yourself.

I know that when I buy land I can work that land. You cannot take away my willingness to work. Only the gods can. I will turn a seemingly useless patch of dirt into a fucking goldmine. But I am cut from a different cloth then most of you. I am built like mountain goat. I am strong on plow and there is immigrant blood in my and it boils hot and make me want to kill.

So I channel all that energy into land development and have total confidence in my ability to strike the stone until wine flows.

Then I go and seek bigger humans than me and invest in them. I invest in people and put my faith in people. People like Elon Musk, JACK DORSEY.

Faith is what lets me sit through the big drawdowns. Just like the Christians can pray to their god when the going gets tough, I can rest assured that I have invested with the brightest humans in the world and that allows me to wait until the tide turns.

The right stuff to invest. The willingness to think and fast and wait. That is all you need. Throw a bit of faith on top and you have the recipe for big gains.

Listen man, make average investments expect average returns. Do something different, expect different results.

That’s all I have to say about investing.

Raul Santos, December 20th 2020

And now the 317th editon of Strategy Session:

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I. Executive Summary

Raul’s bias score 3.75, medium bull. Buyers hold price steady along the highs during the holiday shortened week.

**U.S. markets will close early Thursday (11:15pm ET) in observation of Christmas Eve and remain closed Friday in observation of Christmas Day.

II. RECAP OF THE ACTION

Strong rally early Monday, carried through the week. Selling Friday gave back some of the Wednesday/Thursday gains before strong ramp into the weekly close reclaimed much of the gains.

The last week performance of each major index is shown below:

Rotational Report:

Energy still on its own planet. Tech and discretionary way out in front.

Bullish

For the week, the performance of each sector can be seen below:

Concentrated Money Flows:

Industry flows skew back to bullish after being neutral last week.

Here are this week’s results:

III. Stocklabs ACADEMY

Stocks go up

An interesting observation—from the Intelligence page on Stocklabs. Setting the back test period to ten years and observing the real time data on the current hybrid score, the market has been higher 71.2% of the time over the ten day period.

The statistics from the real time scoring consistently show higher probabilities of prices being higher over a wide range of algorithmic scores.

Something to think about. Consistently engaging the broad market to the short-side is a low probability bet over multiple day holds.

Note: The next two sections are auction theory.

What is The Market Trying To Do?

Week ended searching for sellers.

IV. THE WEEK AHEAD

What is The Market Likely To Do from Here?

Weekly forecast:

Buyers hold price steady along the highs during the holiday shortened week.

Bias Book:

Here are the bias trades and price levels for this week:

Here are last week’s bias trade results:

Bias Book Performance [11/17/2014-Present]:

Semiconductors keep going up, Transports could still fail

Markets fluctuate between two states—balance and discovery.  Discovery is an explosive directional move and can last for months.  In theory, the longer the compression leading up to a break, the more order flow energy to push the discovery phase.

We are monitoring two instruments, the Nasdaq Transportation Index and the PHLX Semiconductor Index.

Transports are sticking around the highs, which makes the failed auction less and less likely. However, one cannot help but see the ascending flag set up, which often times sets up a leg lower. The failed auction picture is still in play and this is a critical contextual component to keep in mind heading into year end.

See below:

Semiconductors negated anything seemingly sketchy last week. Now they simply look like a chart going higher.

See below:

V. INDEX MODEL

Bias model is neutral for a sixth consecutive week. No bias.

VI. Stocklabs HYBRID OVERBOUGHT (COMPLETE)

On Friday, December 4th Stocklabs signaled hybrid overbought. This is a bullish cycle that runs through Friday December 18th, end-of-day. Here is the performance of each major index so far:

VII. QUOTE OF THE WEEK:

“No winter lasts forever; no spring skips its turn.” – Hal Borland

Trade simple, savor the moments as they come

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Bulls, Big Tech optimists, loyal servants to the robots and committed futurists are seeing their ideologies rewarded by the mechanisms of finance this week. Look at me? My hair is long and my beard is black and my van is rusty. I am sitting in my underwear at 9am on a weekday, next to smoking lamp, penning a blog about the wide world of finance. A field, I seem to dominate simply by following a few winks and cues.

We have set aflame the notion of making an honest living as a corporate servant. The business causal dress code has been proven to be WRONG by our odd leader JACK DORSEY.

Yep. It’s the bohemians who’ve come out on top—taking drugs and drinking hooch and sitting around in their underlews next to their smoking lamps. This they/them if filled with gratitude heading into year end, seeing the way things are working out. Now if only if the they/thems guarding Canada would let me in so I can test my new stick out on their mountains…

Yes things are really looking up for your humble pal Raul. I’ve been inside Stocklabs for about eight weeks now and I’ve already traded two winning cycles. Check it out. System flagged hybrid overbought on November 16th and again on December 4th. We don’t count the overbought that happened on November 24th because it happened in the middle of the November 16th cycle. Anyhow, the December 4th cycle comes to an end today at the close and here is the performance so far:

Here are the signals, in case yous don’t believe me:

 

I am noticing an early trend on Stocklabs. The system is generating good signals and folks aren’t taking them. We’re handed the controls to the rocket ship, systems are set to manual, the pilots in control baby, and the pilot jock is fuckin’ up. There is a strong inability for yous all to do nothing.

Look AT ME. I do nothing. I am in my underlews, on a working day, and I am a wealthy man who consistently makes sound investments and trades. I have the right stuff for rising to the top of the world of speculative finance. I am not afraid to die and I am totally willing to put my life in the hands of command control.

Who knows, me working with Stocklabs may result in the architect, dear Senor Tropicana, aka The Fly paying me a few bucks. We don’t know. But I am already using his damned machine to print money.

So thanks.

That’s all I wanted to say. I am not trading today. There is a dusting of snow and it makes the whole town look like it has a new coat of paint and I want to tie a jag on and savor the beauty.

Adios chums…trade’em well…and don’t work too hardt.

Raul Santos, December 18th 2020

 

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NASDAQ futures are coming into Thursday pro gap up after an overnight session featuring elevated range and volume. Price worked higher overnight, rising to a new record high. At 8:30am housing permits/starts came out stronger than expected and jobless claims data slightly worse than expected. No real sign of sellers yet, and as we approach cash open, price is hovering up beyond any prior range.

Also on the economic calendar today we have 4- and 8-week T-bill auctions at 11:30am.

Yesterday we printed a double distribution trend up. The day began with a slight gap up beyond the Tuesday range. Sellers resolved the gap early on and tagged the Tuesday VPOC before the auction turned higher. The rest of the morning was spent steadily ascending higher. The FOMC announcement at 2pm introduced a bit of selling, just enough to tag the daily mid. Buyers held the mid and we rallied into the close, tagging 12,700 and then chopping into the bell.

Heading into today my primary expectation is for sellers to work into the overnight inventory and test back to the Wednesday high 12,704.75. Buyers reject a move back into the range setting up a run through overnight high 12,750 before two way trade ensues.

Hypo 2 gap-and-go up to 12,800. Stretch targets are 12,850 then 12,900.

Hypo 3 sellers work a full gap fill down to 12,675.50. Look for buyers down at 12,668.75 and for two way trade to ensue.

Levels:

Volume profiles, gaps and measured moves:

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NASDAQ futures are coming into Tuesday gap up after an overnight session featuring extreme range on elevated volume. Price was drifting lower overnight, falling down-and-away from the Monday midpoint until about midnight when a strong responsive bid stepped in. The rest of the session was spent rotating higher, unidirectionally trading up through the Monday high. As we approach cash open, price is hovering beyond the Monday range.

On the economic calendar today we have industrial production at 9:15am.

Yesterday we printed a normal variation up. The day/week began with a gap up and drive higher, driving price up through the liquidation zone printed last week. Buyers continued their campaign until just before New York lunch, then the rest of the session saw price check back to the midpoint, buyers defend it once, then a final sell push down through the mid during the closing trade. we ended the session a bit below the mid.

Heading into today my primary expectation is for buyers to sustain trade above the Monday high 12,549.50 setting up a move to tag 12,593 before two way trade ensues.

Hypo 2 stronger buyers sustain trade above 12,600 setting up a run to 12,639.

Hypo 3 sellers work into the overnight inventory, reclaiming the Monday high 12,549.50 early on and seetin up a gap fill down to 12,468.50.

Levels:

Volume profiles, gaps and measured moves:

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Russian hackers tore through the U.S. federal government over the weekend. Including breaching the U.S. Treasury. I am sure it was nothing. Nothing to see here. No reason to be concerned Nope.

Washington Post has the story.

UPDATED: Russian government hackers are behind an online espionage campaign that has breached the Treasury and Commerce Departments, other U.S. agencies and a top cyber firm. The scale of this is "very, very bad," said one source. w/@CraigTimberg https://t.co/DDnvtFo0uG

— Ellen Nakashima (@nakashimae) December 14, 2020

There is a 250 million person union strike happening in the country of India. As much as Americans look to the east for their philosophical virtues, this is a country that maintains a caste system. The big strike could have global ramifications. Maybe humans will be granted more basic human rights. We don’t know.

All I know is I’m happy with my current trajectory. Fit. Health nut. Steadily divesting from the Big Game that is corporate servitude. Doing work that will take robots a long time to assume while doing my best to acquire and be kind to robots.

Anyhow. That’s all I had to say. Have a nice day.

Raul Santos, December 14th 2020

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NASDAQ futures are heading into the first full week of the March contract gap up after an overnight session featuring elevated range and volume. Price was gap up Sunday evening when the Globex markets opened for trade. The buying continued for three minutes before sellers assumed control of the tape until about midnight New York. Said sellers were unable to return price back to the Friday range. Instead we formed a tight balance above the Friday range for much of the session and even briefly probed up beyond the Thursday high. As we approach cash open, price is hovering in the upper quadrant of Thursday’s range.

On the economic calendar today we have 3- and 6-month T-bill auctions at 11:30am.

Last week U.S. equity markets saw a rally through early Wednesday morning, then hard selling Wednesday. Some consolidation selling during the rest of the week but no real follow-through. Divergent strength from the Russell 2000 suggests risk tolerance remains strong. The last week performance of each major index is shown below:

On Friday the NASDAQ printed a neutral extreme up. The day began with a gap down into the lower quadrant of Thursday’s range. Sellers drove lower for 15 minutes after a brief open two-way auction. Then buyers surged price back up above the Thursday midpoint, briefly. Buyers could not reclaim a logical resistance level there and sellers were able to press range extension down into lunchtime. Said sellers were unable to show much follow thru, not even able to take out the Thursday low. That set up a rally for the rest of the session, eventually leading to a close on high of day.

Neutral extreme up.

Heading into today my primary expectation is for a gap-and-go higher. Look for buyers to take out overnight high 12,453.50 early on, setting up a run to 12,500 before two way trade ensues.

Hypo 2 stronger buyers tag 12,531.75 before two way trade ensues.

Hypo 3 sellers work into the overnight inventory and take out overnight w 12,388 on their way to closing the overnight gap down at 12,366.25.

Levels:

Volume profiles, gaps and measured moves:

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Took a heady dose of nitrous oxide Thursday morning, pretty much first thing after some coffee (no breakfast). At the dentist, of course. I have my teeth cleaned every three months…for the nitrous. I gives me the added benefit of having extra squeaky clean teeth. But I am all about that higher consciousness.

Anyhow the NOS calmed me down a bit. I’ve been real buggered lately by the lockdown, notably because I usually take off from the murder mitten during the bleak winter months. I have many dear friends in places much fairer than here who are happy to house me. In the mountains, in the clubs and on the west coast. But why go anywhere? So here I sit, in the grey stew, hunkered down for the sake of the devil knows what.

Fine.

I read a nice Jerry Garcia quote this morning and while the feller hardly seems like the Wall Street type he certainly rode his fair share of waves. I’ve never been a fan of Grateful Dead music, but if I understand correctly they sort of do these long form shows that build and build then release. Which is a common approach today in the techno house scene, and is definitely a wave, man. You know when a DJ is doing it right because the flow adapts to the crowd and the crowd begins the sync and everyone is just vibing.

The Garcia quote is at the bottom of this week’s strategy session, and I dare say it has everything to do with the world of speculative finance. Undifferentiated weirdness. That is all this game is. You can get your fill of bullshit whys from the heads at CNBC entertainment news or any number of popular twitter accounts that have proven to be wrong year-after-year-after-year-after-year-after-year and yet grown more-and-more-popular and more-and-more-vocal and more-and-more-retweeted. Or…or you can put your blinders up, write a trading plan, wrap some risk around it and show up every day ready to work your way through the undifferentiated weirdness.

It may seem sometimes like I harbor a clairvoyance. I mean, I’ve been banging the drums for years-and-years-and-years-and-years-and-years-and-years-and-years-and-years-and-years regarding Tesla. But look, even I sold a third of my hard accumulated Tesla shares back when we hit 1,000 (pre-split). It was just another example of not assigning too much meaning to the weird pudding that is high finance.

And fuck finance to be totally frank. This industry is so chock full of greedy bastids who’d just as soon sell you up shits creek as they would leave you holding the bag. A bunch of measly skunks I tell ya. Our job is not to befriend any of these big shot douche bags. Fuck’em. Our job is to execute our plan and consistently extract fiat american dollars. That’s it.

You start assigning some big meaning to this-or-that move or this-or-that big shot douche bag and you know what’s gonna happen? The Big Machine is going to zero you out and smash your ego with a cinder block. Maybe that’s a good thing. It can be a positive experience. Anything can be. Look at me…I live in a van down by the river loving life.

This is not the kind of game that rewards truth seekers or folks teeing up for that one big life changing trade. That sort of against the odds bullshit only works in hollywood scripts. It has been beaten into the conscious of the American that the individual can defy great odds, with some heroic bravery and luck and fling themselves out of the thick minutia of middle class existence.

Almost certainly this agnostic belief set will end up in ruin. Show up and work. And then work some more. Nobody cares. Look at me. Nobody cares about me except for like two good dudes on Twitter.

Doesn’t matter. I am not here to find a sewing circle, nor am I here to impress any of yous. Extract fiat. Build cool shit. That’s it.

RIP Chuck Yeager.

Raul Santos, December 13th, 2020

And now, the 316th edition of Strategy Session. Enjoy:

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I. Executive Summary

Raul’s bias score 3.03, neutral. Buyers re-emerge and control the tap through Wednesday afternoon. Then watch for the third reaction to the FOMC announcement to provide direction into the second half of the week.

II. RECAP OF THE ACTION

Rally through early Wednesday morning, then hard selling Wednesday. Some consolidation selling during the rest of the week but no real follow-through. Divergent strength from the Russell 2000 suggests risk tolerance remains strong.

The last week performance of each major index is shown below:

Rotational Report:

Energy independently bucks the selling. Everything else rotates lower. Tech being the second weakest sector is not something bulls want to see.

bearish

For the week, the performance of each sector can be seen below:

Concentrated Money Flows:

Industry flows somewhat neutral after two weeks skewing bullish.

neutral

Here are this week’s results:

III. Stocklabs ACADEMY

Still a bullish cycle

We are continuing to operate in a bullish overbought cycle until Friday the 18^th. Expectations remain to the upside.

Note: The next two sections are auction theory.

What is The Market Trying To Do?

Week ended searching for sellers.

IV. THE WEEK AHEAD

What is The Market Likely To Do from Here?

Weekly forecast:

Rally through early Wednesday morning, then hard selling Wednesday. Some consolidation selling during the rest of the week but no real follow-through. Divergent strength from the Russell 2000 suggests risk tolerance remains strong.

Bias Book:

Here are the bias trades and price levels for this week:

Here are last week’s bias trade results:

Bias Book Performance [11/17/2014-Present]:

Semiconductors go parabolic, Transports not acting like a failed auction

Markets fluctuate between two states—balance and discovery.  Discovery is an explosive directional move and can last for months.  In theory, the longer the compression leading up to a break, the more order flow energy to push the discovery phase.

We are monitoring two instruments, the Nasdaq Transportation Index and the PHLX Semiconductor Index.

Transports are lingering along the high after initially looking like they may print a failed auction. The longer this index can stick up here, the less likely a hard sell is to materialize and more likely we are to see a fresh leg up.

Watch FedEx earning due out Thursday after market close to perhaps tip this index one way or another.

See below:

Semiconductors really look sketchy for the bulls. After blasting higher out of the ascending wedge, the wedge which formed during the 4^th rotation higher of the current discovery phase, they quickly have given back much of the move.

If this index falls back down through the wedge it could be the start of a discovery down phase.

See below:

V. INDEX MODEL

Bias model is neutral for a fifth consecutive week. No bias.

VI. Stocklabs HYBRID OVERBOUGHT

On Friday, December 4th Stocklabs signaled hybrid overbought. This is a bullish cycle that runs through Friday December 18th, end-of-day. Here is the performance of each major index so far:

VII. QUOTE OF THE WEEK:

“It’s pretty clear now that what looked like it might have been some kind of counterculture is, in reality, just the plain old chaos of undifferentiated weirdness.” – Jerry Garcia

Trade simple, eschew seeking higher meaning

 

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